Compliance carbon market
Also called: Regulated carbon market · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
A compliance carbon market is created by law. Firms covered by it must hand over (surrender) allowances or credits that match their emissions. An allowance is a permit to emit one tonne of greenhouse gas, measured as CO2-equivalent. Firms that cut emissions cheaply can sell their spare allowances or credits. Firms that find cutting costly can buy them instead. Because participation is compulsory and penalties back it, this market can deliver guaranteed emission cuts.
Example
The EU Emissions Trading System began in 2005, and China's national ETS began in 2021. India's Carbon Credit Trading Scheme 2023 has a compliance mechanism that sets GHG-intensity targets for sectors it notifies. The Bureau of Energy Efficiency (BEE) runs the scheme, Grid-India keeps the registry and CERC regulates trading.
Don't confuse with
- Voluntary carbon market: buyers purchase credits by choice, for example to support their own climate claims. No law forces them to buy.
- Carbon tax: fixes the price of emissions. A cap-and-trade compliance market fixes the quantity and lets the price vary.
Related concepts
- Internalisation of externalities
- Carbon pricing
- Green tax
- Social cost of carbon
- Internal carbon price
- Fossil fuel subsidies
- Cap-and-trade
- Carbon market
- Voluntary carbon market
- Carbon credit